The changes, although significant in some cases, will not substantially alter trade flows between the three countries.
The new Free Trade Agreement between the United States, Canada and Mexico is now ready for implementation, following ratification by the congresses of the three countries. The revision of the previous treaty, which came into force in 1994, was called for by Donald Trump on his arrival at the White House, citing the trade deficit generated for the US in relation to Canada and especially Mexico. Although some significant corrections have been introduced, following the main American approaches, it does not seem that the revised agreement will substantially modify trade flows between the three countries.
▲ Presidents Peña Nieto, Trump and Trudeau sign the free trade agreement in November 2019 [US Gov.]
article / Marcelina Kropiwnicka
On 1 January 1994, the North American Free Trade Agreement (NAFTA) entered into force. More than twenty years later and under the administration of President Donald Trump, the three partner countries opened a review process of agreement, now called the Free Trade Agreement between the United States, Canada and Mexico (to which each country has given a different acronym: the Mexicans call it T-MEC or TMEC, the Americans USMCA and the Canadians CUSMA).
The text of the TMEC finally ratified by the three countries is broadly consistent with the old NAFTA. However, there are particular distinctions. Thus, it includes stricter rules of origin in the automotive and textile sectors, an updated labour value content requirement in the automotive sector, increased US access to Canadian supply-managed markets, novel provisions related to financial services, and a specification on the establishment of free trade agreements with non-market economies. The joint goal is to encourage production in North America.
New developments negotiated in 2017-2018
The three parties began negotiations in the summer of 2017 and after just over a year they concluded a agreement, signed by the presidents of the three countries in November 2018. The main novelties introduced until then were the following:
1) The agreement revises the regional value content (RVC) percentage for the automotive industry. Under NAFTA, at least 62.5% of an automobile had to be made from North American parts. The TMEC raises the percentage to 75% with the intention of strengthening the countries' manufacturing capacity and increasing the strength of work in the automotive industry.
2) Along the same lines, to support employment in North America, the agreement contains new trade rules of origin to boost higher wages by mandating that 40-45% of auto manufacturing be done by workers earning at least $16 per hour on average by 2023; that's roughly three times the pay a Mexican worker normally receives today.
3) Apart from the automotive industry, the dairy market will be opened to ensure greater access for US dairy products , a demand core topic for Washington. Currently, Canada has a system of domestic quotas that were put in place to protect its farmers from foreign skill ; however, under the new TMEC agreement , changes will allow the US to export up to 3.6% of Canada's dairymarket ,an increase of 2.6% from the original NAFTA provision. Another achievement core topic for Trump was the negotiation of Canada's elimination of what are known as itsmilk classes 6 and 7.
4) Another new aspect is the sunset clause. NAFTA had an automatic sunset clause or a pre-determined end date for the agreement, which meant that any of the three parties could withdraw from the agreement, after a six-month notice of withdrawal notice ; if this did not occur, the agreement remained indefinite. However, the TMEC foresees a duration of 16 years, with the option to meet, negotiate and revise the document after six years, as well as the possibility to renew the agreement after 16 years.
5) The three-country pact also includes a chapter on work that anchors labour obligations at the core of agreement , making enforcement more demanding.
Reforms in Mexico
Precisely to make that last point more credible, US and Canadian negotiators demanded that Mexico make changes to its labour laws to speed up the process of approval and ratification of the TMEC by lawmakers in Washington and Ottawa. US House leaders had doubted Mexico's ability to comply specifically with the labour rights points of agreement. One of President Trump's main objectives in the renegotiation was to reassure US workers that the status of skill would be overcome.
Mexican President Andrés Manuel López Obrador sent a letter to the US congress guaranteeing the implementation of a four-year plan to ensure the achievement of adequate labour rights. López Obrador committed to an outlay of $900 million over the next four years to change the labour justice system and ensure that disputes between workers and employers are resolved in a timely manner. Mexico has also invested in the construction of a Federal Centre for Labour Conciliation and Registration, where labour disputes will be addressed prior to a court hearing.
Obrador showed his commitment to labour reforms by ensuring at least a 2% increase in theminimum wage in Mexico. Most importantly B is that the requirement for direct voting of union leaders will change the way workers' organisations function. With direct elections, decisions on collective agreements will be more transparent. Mexico's plan to improve the working environment will start in 2020.
What's new in 2019 to facilitate ratification
Faced with demands on the US congress , especially from the Democratic majority, to ratify the treaty, negotiators proceeded with two major revisions to NAFTA. One of them aimed primarily at revising a large number of provisions relating to intellectual property, pharmaceuticals and the digital economy:
6) The intellectual property rights chapter seeks to address US concerns to spur innovation, generate economic growth and support jobs work. For the first time, according to the US Trade Representative, the additions include: strict rules against circumvention of technological protection measures for music, movies and digital books; strong protections for pharmaceutical and agricultural innovation; broad protections against theft of trade secrets; and authority for officials to stop suspected counterfeit or pirated goods from official document .
7) A new chapter on digital trade has also been included that contains stricter controls than any other international agreement , strengthening the foundation for the expansion of trade and investment in areas where the US has a competitive advantage.
8) The final draft removes a 10-year guarantee of intellectual property protection for biological medicines, which are some of the most expensive medicines on the market. It also removes granting an additional three years of IP exclusivity for medicines for which a new use is found.
A second group of last minute changes makes reference letter for greater environmental and labour protections:
9) Environment covers 30 pages, outlining obligations to combat trafficking in wildlife, timber and fish; strengthen law enforcement to stop such trafficking; and address critical environmental issues such as air quality and marine litter. New obligations include: protection of various marine species, implementation of appropriate methods for environmental impact assessments, and alignment with obligations under seven multilateral environmental agreements. In particular, Mexico is agreement to improve surveillance to stop illegal fishing, and the three countries agree to stop subsidize fishing for overfished species. To increase environmental accountability, Democrats in the US House of Representatives called for the creation of an inter-agency oversight committee. However, the treaty does not address climate change issues.
10) To ensure that Mexico delivers on its labour promises, House Democrats forced the creation of an interagency committee to monitor the implementation of Mexico's labour reform and compliance with labour obligations. Despite the new and unique 'LVC' requirement, a labour value content rule, it will still be difficult to impose a minimum wage on Mexican automakers. However, US Democrats hope that the condition will force automakers to buy more supplies from Canada or the US, or cause automakers' wages in Mexico to rise.
The finally ratified agreement will replace the one that has been in force for 25 years. Overall, the move from NAFTA to the TMEC should not have a drastic effect on the three countries. It is a progressive agreement that will entail slight changes: certain industries will be affected, such as the automotive and dairy industries, but only to a small extent. In the long run deadline, given the changes introduced, wages should increase in Mexico, which would reduce Mexican migration to the US. Businesses will be affected in the long run deadline, but with back-up plans and new redesigns, the transition process will hopefully be smooth and mutually beneficial.